Turning the tide: the future of Climate Tech in the Netherlands

‘Cautious’ is the word Gerrit Ledderhof uses while reflecting on the global results of the State of Climate Tech report for 2024. As a seasoned climate expert within PwC Netherlands, Ledderhof isn't one to lose hope easily. With an optimistic mindset, he believes the world stands at a crucial tipping point where the tide of declining innovation funding can be turned. 

According to PwC's latest CEO Survey climate-friendly investments made over the last five years were six times as likely to have increased revenue as to have decreased it. This indicates that such investments are not only viable but also advantageous from a financial perspective.

AI will not replace a diesel van

‘The world has funding, and that's the silver lining,’ he starts. ‘But truth be told, it's simply not enough. We need more robust investments, and not just in AI-related start-ups. There is more to solving climate-related problems than just AI.’ His words serve as a crucial warning, reminding us that a diversified approach in climate tech investments is paramount for our planet's future. 

One of the key arguments for leveraging AI in climate solutions is its ability to process vast amounts of data efficiently, thus identifying potential efficiencies and improvements. Ledderhof: ‘This capability is undoubtedly beneficial, but AI isn't a direct replacement for tangible solutions like heat pumps to eliminate gas use or electric vehicles to replace petrol and diesel. Nor is it a substitute for innovations in agriculture or other sectors. While AI has its place, we need to recognise the significant environmental impact of AI itself, and we must remember that AI should be part of a broader, more diverse approach to climate technology.’ 

Ledderhof reflects on how the Dutch findings mirror global trends, revealing both caution and optimism in the climate tech sector. He analysed the data from PwC's comprehensive research, covering over 52,000 deals, almost 600 billion dollars in investments, and 12,000 start-ups worldwide. ‘Interestingly, while the Dutch results align with global patterns, there are unique insights specific to the Netherlands that particularly fascinate me,’ he notes.

Globally: Climate Tech in decline 

But first, let’s have a look at the state of Climate Tech globally. Three years after a peak in climate tech investing, investors and start-ups are faced with uncertain economic conditions and finding it ever tougher to make deals. Capital flows and transaction volume continued to trend downwards, dropping below levels recorded in 2019, before the market had taken off.  With climate tech financing dropping by 29 per cent between Q4 2022 and Q3 2023, it’s clear that climate tech investing is still in decline.

AI, climate adaption and resilience 

Yet the past year also brought opportunities for savvy investors. Start-ups operating in the energy sector increased their share of climate tech funding. AI-centred climate ventures raised US$1 billion more in the first three quarters of 2024 than they did in all of 2023, as investors recognised AI’s power to drive productivity and efficiency improvements of all kinds. Technology for climate adaptation and resilience stood out as a theme, featuring in more than one-quarter (28%) of climate tech deals.

Essential role of big companies

New analysis also highlights the role that big companies are playing as climate tech investors. Their venture capital funds, and other investment units have participated in about a quarter of climate tech deals for several years running. What’s more, bigger firms tend to get involved in mid-stage and late-stage deals, a key to helping climate ventures reach scale. In sectors in which climate tech start-ups attract relatively little funding — industrials, food and agriculture, and engineering and construction — large, established companies could help drive the innovation that’s needed to achieve global emissions targets. 

The Netherlands: three climate tech insights

Now, let’s shift our gaze to the Dutch Climate Tech Landscape. In general, Ledderhof sees the Dutch downplaying the potential risks associated with climate change. ‘I can imagine that is one of the reasons innovation-focused funding is not happening enough.’

He points to the lengthy Dutch history and experience with environmental adaptation. ‘Global warming is causing sea levels to rise. Dutch companies are well aware. But water has always been a problem. So, my clients ask me: “How is this different than everything that we've been dealing with for hundreds of years?” Besides, the Netherlands has a system in place – like dikes, pumping stations and water authorities – to support everyone regarding the threat of water.’

What else does he identify as a hallmark of the Dutch state of climate technology? Here are three of his insights that have caught his attention: 

Ledderhof notes that looking at the results of the PwC-research Dutch corporates are significantly less involved in climate tech investments compared to their global counterparts. This discrepancy is, according to him, concerning as it indicates a lag in innovation within the Netherlands. While corporate involvement remains fairly consistent globally, the Netherlands is experiencing a decline both on an absolute and relative scale. This reduced participation from Dutch companies in climate tech initiatives could hinder the country’s ability to innovate and address climate or energy transition challenges effectively.

Ledderhof also points out the significant uncertainty in the policy environment within the Netherlands, which has been a notable factor in the decline of climate tech investments and corporate involvement. 

He refers to the Klimaat- en Energieverkenning (KEV) report of October 2024 published by PBL, the Netherlands Environmental Assessment Agency. ‘2030 climate target gets out of sight; additional policies with quick effect needed. The Netherlands is very unlikely to meet its statutory climate target of 55 per cent emissions reduction by 2030’, the report notes. Ledderhof: ‘According to the KEV report one of the reasons there is a reduced likelihood of the Netherlands meeting its targets is due to policy uncertainty.’ This uncertainty has been exacerbated by the actions of the new coalition government, leading to confusion about regulations and incentives. 

It has created a cascading effect that hampers corporate involvement. This uncertainty leads to less action which leads to a decline in the deployment of necessary technologies and solutions. This reduced deployment diminishes overall investment in the sector, as investors see fewer tangible outcomes and returns. As investment wanes, corporations become increasingly hesitant to commit funds to innovative actions and tech start-ups. Thus, the cycle of policy uncertainty not only stifles immediate progress but also undermines long-term corporate engagement and innovation in the climate tech space.

The decline in funding and innovation is largely about risk, according to Ledderhof. ‘The money hasn't disappeared. It's not like Dutch pension funds, banks, and companies are suddenly broke. The economy isn't collapsing around us.’

Ledderhof suggests that there are likely more secure ways to achieve returns. ‘So, why would a company here miss out on investments? In the Netherlands, we're stuck in a middle ground where we're not bold enough to make necessary future investments, but also not careless and entrenched in outdated practices like drilling for oil. We're attempting to be both bold and cautious simultaneously.’

This issue isn't just confined to the Netherlands; it's an EU-wide problem. Ledderhof: ‘We're increasingly not a competitive economy. Energy prices here are some three times higher than elsewhere. The challenge is to reduce these costs. By moving away from fossil fuels, countries or continents can reduce their dependency on speculative markets and improve their cost structures, achieving climate targets while driving investment.’

Currently, investments are lagging because many companies are focused on cutting costs, which ultimately destroys long-term competitiveness by embedding structural deficiencies. One of the most striking insights is why a country such as China is heavily investing in green energy and tech. ‘Looking at China's electric vehicle (EV) sector and significant investments in solar, wind, and nuclear energy, it's clear that green tech is pivotal for their future’, Ledderhof says. ‘It's a long-term perspective we seem to lack.’ 

Climate tech: the way forward

While the challenges are substantial, there remains a clear path forward. Ledderhof is convinced that by adopting a unified and coherent policy framework, the Netherlands can regain its momentum in the climate tech sector. This requires not only bold leadership but also collaboration across all levels of government, industry, and society – essentially a return to the so-called ‘polder model’. The potential for innovation, economic growth and a solid future through a collaborative approach to green technology is immense. 

Solving climate change is about doing things differently, the climate expert believes. Continuing with the same methods that are driving climate change likely won't lead to solutions. Even optimising current practices might only solve a fraction of the problem. True change comes from altering how we do things. This approach emphasises collective action and the implementation of actual innovative products and services. However, this shift is challenging because it carries more risk. Ledderhof: ‘Funding technical innovation focused on making tangible things and changing physical processes is inherently harder than generating profit from optimisation tools using AI. Yet, this is the necessary path forward to address climate change effectively.’